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Sunday, 15 January 2017

Portfolio Update and New update of Ellipsiz

Since the last update of my portfolio, I have made a few more purchases: 23,000 shares of silverlake shares at the price range of 52-52.5 cents and 10,000 shares of ARA at s$1.685.

The rationale for ARA is straightforward. The company is undergoing a takeover offer at 1.78. With the takeover targeting for completion by 1H2017, I am expecting a return of about 5% over the holding period of half a year. The downside is of course the failure of the takeover. However, ARA is a relatively strong company; given that it is dishing out annual divided of 4 cents and is in the business of a portfolio manager, I am inclined to continue holding the stock for its dividend.

Ellipsiz

I am more interested in my latest addition and that is Ellipsiz. To summarize, the company main's business is the production of probe card for the semiconductor and electronics manufacturing industry and distribution of service solutions for the electronics manufacturing chain.

Good Free Cash flow

This is one of the main thesis for investing into Ellipsiz.

Ellipsiz Operating Cashflow

From its cash flow statement for the past few years, Ellipsiz's has been generating an increasing operating cash flow before WC changes. Given that the semiconductor industry it is serving is still going strong due to the demand of electronic goods, my opinion its current cashflow generation will be constant.

At current cash flow generation of about 13 mil, then deducting taxes, interest and its maintenance CAPEX of approx 2.7 mil, Ellipsiz free cash flow is about s$8.5 million.

At current share price of 0.375, Ellipsiz market capitalization is s$62.6mil. This means it is selling at a 13.5% FCF yield.

Strong Balance Sheet

At a debt ratio position of 19%, the company is relatively lowly geared. The company too has been paying down its bank borrowings which it had utilized due to the acquisition of a Japanese company in the past. Soon, the company will have negligible borrowings and that is definitely a positive sign.

With the recent disposal of an associate company, Kita, the company is in a net cash position of 78%.

I was trying to imply debt ratio not net debt"; I have amended respectively. For educational purpose, "Net debt" follows the formula of "Net Debt = (Short-Term Debt + Long-Term Debt) - Cash and Cash Equivalents". The link can be found here for reading

http://www.investopedia.com/terms/n/netdebt.asp

Investopedia is a good source to learn more on investment calculations

Thanks for your reply. The Cash Flow picture in your post seems from Ellipsiz 2016 annual report. Based on which, total liability = 28,269K, total asset = 156,391K, so debt ratio = 28,269/156,391 = 18.75% = 19 (approx)? Is this how you calculate?

One more question, at end of post you mentioned "the company is in a net cash position of 78%', may I know how you calculate this figure? It's best you could indicate which figures (in the annual report) were used for the calculation. Thanks in advance.

Calculation of net cash is subjective because we need to discount items on the balance sheet. Using Q1 FY 17 results, total cash post disposal of associate is (44.6 + 8) mil. Trade receivable was 33.8 mil, but we have to discount this as margin of safety; applying a 35% discount, we get 21.97 mil. All other stated asset on balance sheet, I assumed as worthless.